© Bloomberg. An oil flare burns at the BP Plc Whiting Refinery in Whiting, Indiana, U.S., on Sunday, Oct. 10, 2021. Oil demand is set to increase by an average of almost 4 million barrels a day in 2021 vs. a low, pandemic-driven 2020 level. Photographer: Luke Sharrett/Bloomberg
(Bloomberg) — Oil held above $80 a barrel on expectations that a power crunch from Asia to Europe will lift demand and tighten global balances.
West Texas Intermediate futures edged lower in early Asian trading after closing up 1.5% on Monday. Oil markets are tightening rapidly in the run-up to the Northern Hemisphere winter as shortages of and coal boost demand for alternative power generation fuels like diesel and fuel oil.
The switching is changing the benchmark’s market structure. WTI’s prompt timespread is 61 cents in backwardation, a bullish pattern where near-dated contracts are more expensive than those further out, up from 29 cents at the start of last week. Citigroup Inc (NYSE:). raised its fourth-quarter forecast to $85 a barrel. Prices could rise to $90 at times, on “higher demand, lost supply, gas-to-oil switching and price contagion this winter,” it said in a note.
If prices continue to rise, the U.S. is likely to ask OPEC to pump more crude, according to Daniel Yergin, vice chairman of IHS Markit. The White House has been in communication with OPEC over the last few months, pushing them to boost their output while stressing the importance of affordable energy.
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